Companies “have an interest” in taking part of the wage increases from their margins, says Lagarde

It is a declaration in the form of an appeal. To avoid a further slippage in inflation, Christine Lagarde believes that businesses have an important role to play. In an interview given for the first issue of La Tribune Dimanche this Sunday, October 8, the French president of the European Central Bank (ECB) affirms that they “have an interest” in “agreeing to take on their margins – which have not not changed much in 2022 – part of the salary increases which will be negotiated this year and the next.

Otherwise, there is the risk of alienating consumers. “Public opinion will put pressure on it. The public authorities too,” anticipates the former general director of the International Monetary Fund (IMF). In France, this has already started. Just think, for example, of Emmanuel Macron's statements calling on September 24 for “an agreement on the moderation of margins throughout the agri-food sector”. And even, “the drop in demand should (...) lead” companies to take this path, judge in the weekly Christine Lagarde.

This reduction in margins is in any case “the hypothesis integrated into (the) economic forecasts” of the ECB. Because the institution imagines that “companies will behave in the same way as during previous crises, that is to say by reducing their margins a little to integrate part of the salary increases”, explains Christine Lagarde. If this were not the case, inflation could be revised upwards and growth prospects, on the contrary, downwards.

According to the ECB's latest forecasts, inflation in the euro zone should fall to 5.6% this year - after 8.4% in 2022 -, then to 3.2% in 2024 and 2.1% in 2025. “Inflation persists, but it is decreasing. It is even in constant deceleration. This is good news,” said Christine Lagarde in La Tribune Dimanche. As for growth, according to the ECB, it should be 0.7% in 2023 - compared to 3.5% in 2022 -, 1.0% in 2024 and 1.5% in 2025.

Beyond the behavior of companies, the head of the European Central Bank judges that the other uncertainty weighing on the continent's short-term economic outlook is energy prices. “I think we have to get used to the idea that the price of oil will remain high. This should encourage us even more to continue the fight against climate change and to move towards an energy mix less dependent on fossil fuels and external suppliers,” points out the former French Minister of the Economy.